20 Apr 2014
Just how productive are Chief Information Officers or the technology that they manage? With technology portfolios becoming increasingly complex it is harder than ever to measure productivity. Yet boards and investors want to know that the capital they have tied-up in the information technology of the enterprise is achieving the best possible return.
For CIOs, talking about value improves the conversation with executive colleagues. Taking them aside to talk about the success of a project is, even for the most strategic initiatives, usually seen as a tactical discussion. Changing the topic to increasing customer value or staff productivity through a return on technology capital is a much more strategic contribution.
What is the return on an IT system?
There are all sorts of productivity measures that can be applied to individual systems, but they are usually based on the efficiency of existing processes which leads to behaviours which reduce flexibility. The future of business and government depends on speed of response to change, not how efficiently they deal with a static present.
Businesses invest in information systems to have the right information at the right time to support decisions or processes. Information that is used is productive while information that is collected, but poorly applied, is wasted or unproductive.
However, to work out what proportion of information is being used there needs to be a way to quantify it.
How much information is contained in the systems?
There is a formal way to measure the quantity of information. I introduce this extensively in chapter 6 of Information-Driven Business.
The best way to understand “quantity” in terms of information is to count the number of artefacts rather than the number of bits or bytes required to store them. The best accepted approach to describing this quantity is called “information entropy” which, confusingly, uses a “bit” as its unit of measure which is a count of the potential permutations that the system can represent.
A system that holds 65,536 names has just 16 “bits” of unique information (log265536). That might sound strange given that the data storage of 65,536 names might use of the order of 6MB.
To understand why there only 16 bits of unique information in a list of 65,536 names consider whether the business uses the spelling of the names of if there is any additional insight being gained from the data that is stored.
How much of that information is actually used?
Knowing how much information there is in a system opens up the opportunity to find how much information is being productively used. The amount of information being used to drive customer or management choices is perhaps best described as “decision entropy”. The decision entropy is either equal or less than the total information entropy.
An organisation using 100% of their available information is incredibly lean and nimble. They have removed much of the complexity that stymies their competitors (see Value of decommissioning legacy systems).
Of course, no organisation productively uses all of the information that they hold. Knowing that holding unproductive information comes at a cost to the organisation, the CIO can have an engaging conversation with fellow executives about extracting more value from existing systems without changing business processes.
When looking at how business reports are really used, and how many reports lie unread on management desks, there is a lot of low hanging fruit to be picked just by improving the way existing business intelligence is used.
Similarly, customer systems seldom maximise their use of hints based on existing information to guide buyers to close the best available offer. A few digital enhancements at the front line can bring to the surface a vast array of otherwise unused information.
Changing the conversation
Globally, CIOs are finding themselves pushed down a rung in the organisational ladder. This is happening at the very same time that technology is moving from the back office to become a central part of the revenue story through digital disruption.
CIOs are not automatically entitled to be at the executive table. They have to earn the right by contributing to earnings and business outcomes. One of the best discussions for a CIO to focus on is increasing productivity of the capital tied-up in the investments that have already been made in the systems that support staff and customers.